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The appraisal

By Nancy Russell, Vice President CBRB

Nancy Russell, Vice President CBRB

There are many elements to listing and selling your home. There is the interviewing of real estate listing agents, establishing a sales price, staging consultation and the necessary activities associated with readying your home for sale, brokers luncheons, open houses, etc. However, in today's market there is nothing more vital than the appraisal.

The real estate appraisal, property valuation or land valuation is the process of valuing a real property. The value sought is the property's market value or the price at which a property would sell in a competitive market. Market value is often used interchangeably with open market value or fair market value. Appraisals are needed because real estate transactions occur infrequently in comparison to say a stock trading on the NYSE where prices are set every minute of every trading day. Appraisals are unique to a specific property because every property is different from the next.

Appraisals are required if a buyer will be applying for a mortgage. Cash deals do not require appraisals although it is always a good idea to obtain one. Lending institutions will require an appraisal because it wants to ensure that the property will sell for at least the amount of money it is lending. This protects the lending institutions interests.  Appraisals are more detailed then a comparative market analysis (CMA). Real estate agents use CMAs to help home Sellers determine a realistic asking price. Experienced agents often come very close to an appraisal price with their CMAs, but an appraiser's report is the only valuation a lending institution will consider when deciding whether or not to lend the money.

There are two common appraisal methods used for residential properties: sales comparison approach (SCA) and cost approach. SCA relies on the assumption that a matrix of attributes or significant features of a property drive its value. Among other things, the SCA will look to the three most similar sales to the subject property within a specified radius. The cost approach estimates how much it would cost to replace the structure if it were destroyed.

Buyers pay for appraisals and both buyer and lending institution are provided a written report. It is this report that is used as the basis for mortgage loans. Items an appraisal report will list are the number of times a property transferred. If a property has transferred many times in a short period a red flag might be raised. The appraisers will determine that the transfers were “arms-length transactions.”  An arms-length transaction is the condition or the fact that the parties to a transaction are independent and on equal footing. When valuing properties you want to ensure the real value and not the value if a property transferred from parent to child at an artificially low price. Other items included are location, total room count, and gross living area. And since we are blessed here in Central Mass, reports can include the “view” if a property is on a lake or side of a mountain/hill.

If the ordered appraisal comes back at or above the negotiated sell price, then the deal will proceed forward. However, nothing good happens when the appraised price comes back below the negotiated sales price. The buyer can walk away from the deal or they can go back into negotiations with the seller based on the lower appraised price. This scenario generally hurts the seller. This is the main reason why a seller should look for a top-notch agent to sell their home, the true value proposition of a seasoned professional agent.

A famous quote of Warren Buffet is, “Price is what you pay, value is what you get.”  And value is what you get when you have me list and sell your home.

“Whatever Nancy touches turns to SOLD.” Call me at 508-243-8128 or email Nancy.Russell@nemoves.com. Visit my website, www.nancyarussell.com, for more information or stop by the office located at 2 Maple Ave. in Shrewsbury.

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Posted by on Mar 29 2012. Filed under Real Estate. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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